Disqualifying disposition
Certified Financial Planner glossary · Certified Financial Planner
Definition
A sale of incentive stock option shares failing the two-year-from-grant or one-year-from-exercise holding requirement.
Disqualifying disposition in plain English
ISO shares are sold ten months after exercise and eighteen months after grant. That sale is a disqualifying disposition because it fails the two-years-from-grant or one-year-from-exercise holding requirement. Preferential ISO capital-gain treatment collapses and bargain-element ordinary income typically appears. A qualifying disposition needs both holding periods satisfied. Check grant date and exercise date independently whenever an ISO sale timing looks aggressive.
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